What is a “due on sale” clause?

A “due on sale” clause is a provision often included in residential real estate contracts in Virginia. This clause requires the mortgage lender to be paid in full if the home is sold, transferred, or otherwise conveyed to a new owner. This means that when a home is sold, the lender is the first to be paid when the sale proceeds are dispersed. The lender then holds the remaining proceeds of the sale in escrow until all mortgage debt is paid off. The due on sale clause prevents the transfer of mortgage debt to a new owner. This means that if the previous owner is behind on mortgage payments, the new owner is not responsible for paying off the mortgage debt. This provides an incentive for the mortgage lender to take the home back in foreclosure rather than letting a new owner take over the mortgage. The due on sale clause was put in place to protect the mortgage lender’s investment in the residential property. It gives the lender a greater level of control over the property and helps to keep the mortgage debt secure. This is especially important in Virginia, which is a judicial foreclosure state. This means that the lender must go through the court system to repossess the property if the prior owner defaults on their mortgage payments.

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